Johnson v. Heath, 56 F.4th 851

Background

Michael and Dawn Heath operated gas/service stations (Elko, Wells, New Harmony); Johnson bought the Wells station in 2014 after receiving financials from the Heaths via agent Jon Walter.
Johnson alleged the Heaths ran a scheme called “burning the station”: overcharge customers (e.g., hiding gasoline price sign, unnecessary repairs), neglect property maintenance, inflate profits, then sell the station without disclosing defects.
Johnson sued in federal court asserting nine state-law claims and a RICO claim (18 U.S.C. §§ 1962(c), 1964(c)) against Michael Heath; the district court dismissed the RICO claim for failure to plead a RICO pattern and declined supplemental jurisdiction over state claims.
Defendants sought attorney’s fees under contractual fee provisions (purchase agreement, promissory note, deed of trust); the district court denied fees, finding the agreements did not cover the RICO claim or that defendants were not beneficiaries of the deed of trust.
Tenth Circuit affirmed dismissal of the RICO claim (holding plaintiff failed to plead the required RICO “pattern”/continuity) and affirmed denial of attorney’s fees; one judge dissented as to the RICO dismissal, arguing continuity and proximate causation were adequately pleaded.

Issues

Issue	Plaintiff's Argument (Johnson)	Defendant's Argument (Heath)	Held
Did plaintiff plead a RICO "pattern" (relationship + continuity)?	Alleged repeated, related frauds (24–25 customer incidents over ~11 years plus fraudulent sale) show related predicates and closed-ended continuity (substantial duration and extensiveness).	Incidents were isolated or limited; scheme targeted a single discrete goal (one sale) and lacked the extensiveness or threat of continued racketeering required for continuity.	Court: Even assuming predicates pleaded, no RICO pattern—relationship limited to the Wells station predicates and closed-ended continuity lacking (scheme not sufficiently extensive); affirm dismissal.
Were the predicate racketeering acts (wire, bank, access-device fraud) adequately pleaded?	Wire fraud alleged via deceptive price signage and foreseeably induced credit-card payments; communications to Johnson allegedly fraudulent.	Predicates fail (e.g., lack of use of wires by defendant to perpetrate fraud).	Court: Did not decide predicates conclusively—assumed without deciding that bank and wire fraud were adequately alleged but dismissed for lack of pattern. Dissent would have held wire fraud adequately pleaded.
Did plaintiff adequately allege proximate causation between predicates and his economic injury?	Johnson relied on defendants’ misrepresentations about profitability; overcharging customers inflated reported profits and caused Johnson to overpay for the station.	Overcharging customers unrelated to Johnson’s purchase injury; insufficient direct link.	Court: Majority did not reach proximate-causation as dismissal rests on lack of pattern; dissent believed causation was adequately pleaded.
Are defendants entitled to attorney’s fees under the deed of trust?	Defendants claim beneficiary status and that fee clause covers costs of defending or prosecuting actions related to the deed’s security.	The deed names Land Exchange Corporation as beneficiary (not defendants); the fee clause applies only to actions affecting the deed/security; RICO claim sought damages, not to affect deed rights.	Court: Fee clause in deed of trust does not apply to the RICO claim (it targets actions affecting the property or beneficiary rights); affirm denial of fees.

Key Cases Cited

H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229 (1989) (RICO pattern requires relationship among predicates plus continuity or threat of continued racketeering)
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985) (statutory definition of racketeering and limits of §1961(5))
George v. Urban Settlement Servs., 833 F.3d 1242 (10th Cir. 2016) (elements required to plead §1962(c))
Resolution Trust Corp. v. Stone, 998 F.2d 1534 (10th Cir. 1993) (closed-ended continuity factors: duration and extensiveness)
Sil-Flo, Inc. v. SFHC, Inc., 917 F.2d 1507 (10th Cir. 1990) (single-scheme treatment and pattern analysis)
Boone v. Carlsbad Bancorporation, Inc., 972 F.2d 1545 (10th Cir. 1992) (RICO targets long-term racketeering conduct; continuity analysis guidance)
Smith (United States v. Smith), 413 F.3d 1253 (10th Cir. 2005) (consideration of number of victims, variety, complexity in closed-ended continuity)
Holmes v. Securities Investor Protection Corp., 503 U.S. 258 (1992) (proximate causation standard for RICO claims)
Hemi Group, LLC v. City of New York, 559 U.S. 1 (2010) (direct relation and proximate-causation principles in RICO context)
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleading)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (application of plausibility standard to complaints)